Brancheneinblick
The rise of the internet buy-out
With the internet bubble long over and the detritus cleared away, many of the companies that survived the rise and fall of the technology markets are profitable.
The internet technology sector has long been considered to be the domain of early stage investors. Yet as the sector matures, internet companies that are now profitable could become attractive later-stage investment opportunities for private equity investors that make larger investments in more mature companies than early stage investors.
A profitable company in any industry is able to borrow money. A company that can borrow money, assuming it meets a number of other standards, could be a potential acquisition for a private equity fund. Funds advised by Apax Partners are investors in eDreams and Audible, two internet companies that are profitable. Analysts expect Audible’s profits to rise at least three-fold over the next four quarters. Audible case study, Read more >>
Private equity funds typically invest in leveraged buyouts, in which a private equity fund, usually backing a management team, buys a company using its own as well as borrowed money. The new owners often restructure the businesses they buy and use the company’s cash flow to pay back the borrowed money. By the end of the investment’s life, the company is likely to be more profitable and the borrowed money will have been paid back.
As the internet technology industry matures, leveraged buyouts of sector survivors are inevitable. Buy-outs in more mature industries, such as retail, telecoms and media have become commonplace. Yet only 26 internet software, service and e-commerce companies have been taken private in transactions totalling $366.52 million from the beginning of 2001 through mid-2005.
From an historical perspective, the sector is inexpensive which could make it attractive. Price/earnings ratio, or P/E ratio, is one commonly used measure of a company’s value. The P/E ratio of the Nasdaq 100, an index of the largest and most active non-financial companies on the technology-heavy Nasdaq exchange, was 35.62 at the end of June 2005. That compares to an average of 124.33 from January 2001 - June 2005.
Industrial companies historically have been ideal candidates to go private, because they were more likely than newer internet companies to have robust cash flow to help service borrowings.
But as internet companies mature, they, too, will be in a position to borrow money and go private.
Brancheneinblick
 |
Bucking the trend by investing in an under-managed Greek mobile phone company
TIM Hellas, Weiter >> |
 |